Purchase / NY. (pci) PepsiCo Inc. reported net revenue growth of four percent and constant currency net revenue growth of five percent. Reported EPS was 0,71 USD and core EPS was 0,69 USD, in line with management´s expectations. Management reaffirmed both its 2012 core constant currency EPS guidance and long-term financial targets and stated that its 2012 strategic initiatives are on track.
«Our first quarter results reflect the strength of our brands which allowed us to implement significant pricing actions», said PepsiCo Chairman and CEO Indra Nooyi. «Effective pricing and packaging initiatives drove five percent constant currency net revenue growth, allowing us to substantially offset approximately 300 million USD in commodity cost inflation. With disciplined pricing now in place, we are doubling our focus on the other key initiatives for 2012. Our top priorities include stepping up our brand support through increased advertising and marketing, accelerating our innovation and driving an aggressive productivity agenda that includes a significant restructuring program. All of these initiatives were launched in Q1/2012 with good results, are on track and will gain momentum as the year progresses. We´re executing on a clear, deliberate game plan that will enhance our competitiveness while also positioning PepsiCo for sustainable growth and value creation for the long term».
Operating and Marketplace Highlights
- Grew net revenue in three of our four business units on a reported basis and grew net revenue in all four business units on an organic basis.
- Achieved 5,5 points of effective net pricing globally.
- Grew both global snacks and global beverage revenue. Grew global nutrition revenue ten percent.
- Grew net revenue nine percent in emerging markets. Emerging market net revenue grew 13 percent on a constant currency basis.
- Held LRB value share to maintain our leadership in measured channels relative to primary competitor in the U.S., the largest global beverage market.
- Increased media spending in the U.S. by 25 percent in the first quarter.
- Ranked No. 1 for contribution to revenue growth in U.S. convenience stores.
- Gained Family Dollar, a leading retailer with more than 7’000 outlets in North America, as a new beverage customer.
- Completed strategic alliance with Tingyi, China´s largest beverage manufacturer, on March 31. China is the world´s second largest LRB market and the alliance creates a system with a relative market share of 1,6 times the next largest competitor´s position. The alliance also creates the country´s largest LRB manufacturing network with more than 70 plants.
- Net capital spending declined by 122 million USD in the quarter and was 4,7 percent of net sales over the last four quarters, an improvement of 80 basis points over the comparable prior four quarters.
Summary of First Quarter Financial Performance
- Reported net revenue increased four percent and constant currency net revenue increased five percent, led by double-digit growth in the Europe and AMEA divisions and mid-single-digit growth in PepsiCo Americas Foods.
- Net revenue benefited from 5,5 percentage points of effective net pricing, offset by negative foreign currency translation of one percentage point. Acquisitions contributed less than one percentage point to net revenue growth.
- Reported operating profit was flat and core operating profit declined six percent. Operating profit performance was in line with management´s expectations and reflected the impact of division operating profit performance and higher corporate unallocated expenses. Reported operating profit included 84 million USD in mark-to-market gains on commodity hedges and 35 million USD of restructuring, impairment and integration charges.
- Division operating profit declined one percent and core division operating profit declined two percent. Division operating profit performance reflected net revenue growth, which was substantially offset by approximately 300 million USD of commodity cost inflation.
- Net interest expense was 175 million USD, an increase of twelve million USD, primarily driven by higher debt balances.
Reported effective tax rate was 26,7 percent, ten basis points below the prior year quarter. Core effective tax rate was 26,7 percent, 70 basis points above the prior year quarter, reflecting geographic mix shift and the favourable resolution of certain tax matters in the first quarter of 2011.
- Reported EPS of 0,71 USD was even with the prior year quarter and core EPS was 0,69 USD, a decline of seven percent, in line with management´s expectations. Reported EPS includes a 0,04 USD per share benefit from mark-to-market net gains on commodity hedges and a negative 0,01 USD per share impact of restructuring, impairment and integration charges.
- A one billion USD pre-tax discretionary pension and retire medical payment in the quarter contributed to an operating cash flow use of 690 million USD. Management operating cash flow (excluding certain items) was 79 million USD in the quarter. The company returned almost one billion USD to shareholders through dividends and share repurchases in the quarter and expects to return more than six billion USD to shareholders for the full year 2012.
PepsiCo Americas Foods (PAF)
Frito-Lay North America (FLNA): Net revenue grew four percent, reflecting six percentage points of effective net pricing. Net revenue growth was particularly strong in the C-store, Dollar and Foodservice channels, supported by innovation and increased media spending. Volume performance was negatively impacted by approximately two percentage points due to the extra week of results in 2011, which caused the key pre-New Year´s holiday week to be included in the fourth quarter of 2011 rather than in the first quarter of 2012. Operating profit growth of two percent reflected the net revenue growth and productivity gains partially offset by commodity cost inflation.
Latin America Foods (LAF)): Net revenue grew eleven percent reflecting volume growth and eleven percentage points of effective net pricing, offset by unfavourable currency translation of six percentage points. Volume grew 15 percent, reflecting a ten-percentage-point benefit from acquisitions and 4,5 percent organic volume growth. Organic volume gains were led by mid-single-digit growth in Mexico. Operating profit grew ten percent as volume gains, positive effective net pricing and productivity initiatives offset commodity cost inflation, an eight-percentage-point unfavourable currency translation impact and a net five-percentage-point negative impact from acquisitions and divestitures.
Quaker Foods North America (QFNA): Net revenue declined three percent and volume declined five percent, reflecting general category trends. Operating profit declined ten percent, primarily reflecting the benefit from an inventory accounting change recorded in the prior year, which contributed seven percentage points to the decline.
PepsiCo Americas Beverages (PAB)
Net revenue declined two percent, primarily reflecting the impact of the re-franchising of the division´s beverage business in Mexico, which reduced net revenue by four percentage points. Net revenue performance also reflected four percentage points of effective net pricing. Excluding the impact of the Mexico re-franchising, net revenue increased two percent. PAB volume declined one percent in the quarter, with gains in Latin America offset by a decline in North America. Non-carbonated beverages grew one percent offsetting a two –percentage-point decline in CSDs. The decline in North America in part reflects the impact of pricing actions taken. Immediate consumption packaged beverage volume in North America grew high-single-digits, driven by strong retail execution. Growth in Latin America was led by double-digit gains in Mexico, high-single-digit growth in Argentina and mid-single-digit growth in Brazil. Operating profit declined in the quarter, primarily as a result of increased commodity costs which offset the benefits of net pricing and savings resulting from recent restructuring activities.
Europe
Net revenue increased 13 percent, reflecting the benefit of the Wimm-Bill-Dann (WBD) acquisition and five percentage points of effective net pricing, offset partially by unfavourable foreign currency translation impact of four percentage points. Volume increased double-digits in both snacks and beverages for the quarter including the impact of the WBD acquisition. Snacks volume increased three percent on an organic basis with gains led by the United Kingdom, South Africa and Russia. Beverage volume declined one percent on an organic basis, with growth in the United Kingdom and Germany offset by declines in Türkiye and Russia, which were lapping double-digit gains. Operating profit performance reflected the net revenue gains and favourable effective net pricing, offset by commodity cost inflation and an unfavourable foreign currency translation impact of two percentage points. In addition, operating profit performance was negatively impacted by unfavourable settlements of promotional spending accruals which decreased operating profit by 15 percentage points.
Asia, Middle East + Africa
Net revenue growth of twelve percent was driven by effective net pricing and volume growth. Snacks volume increased 16 percent and beverage volume grew two percent. Snacks delivered its ninth consecutive quarter of double-digit volume growth in AMEA, with first quarter snacks volume growing double digits in India, Australia, Thailand and the Middle East. Beverage volume growth was driven by double-digit gains in India, Saudi Arabia and the Philippines. China beverage volume performance was impacted by the introduction of a consumer-preferred 500 millilitres PET value package in the third quarter of 2011, which drove unit growth but adversely impacted reported volume growth. Operating profit grew seven percent, with volume growth and seven percentage points of effective net pricing offset partially by higher commodity costs.
Restructuring
As previously announced, the company has committed to a multi-year productivity program. The company incurred pre-tax non-core restructuring charges of 33 million USD in the first quarter of 2012 and anticipates additional charges of approximately 392 million USD in the balance of 2012 and another 102 million USD from 2013 through 2015. These charges resulted in cash expenditures of 44 million USD in the first quarter of 2012 and the company anticipates additional cash expenditures of approximately 506 million USD in the remainder of 2012, with the balance of approximately 175 million USD of related cash expenditures in 2013 through 2015.
2012 Guidance and Outlook_
Consistent with its previous guidance for 2012, the company expects a decline in core constant currency EPS of approximately five percent from its fiscal 2011 core EPS of 4,40 USD. Based on the current forex market consensus, foreign exchange translation would have an unfavourable impact of approximately two percentage points on the company´s full year core EPS performance in 2012. The company expects core constant currency net revenue growth of low-single-digits reflecting the impact of structural changes, principally re-franchising, which are expected to reduce core constant currency net revenue growth by approximately three percentage points for the full year. Excluding these structural changes, core constant currency net revenue is expected to grow mid-single-digits, consistent with the company´s prior guidance.
The company is targeting approximately eight billion USD in cash flow from operating activities and more than six billion USD in management operating cash flow (excluding certain items) in 2012, which includes the favourable impact of an expected ten percent reduction in capital spending and improved working capital efficiency. The company also made a pre-tax discretionary pension and retiree medical contribution of one billion USD in the first quarter of 2012.
Reflecting its commitment to return capital to shareholders, the company anticipates more than three billion USD in share repurchases for 2012 and expects to pay 3,3 billion USD in dividends. The dividend reflects a four percent dividend per share increase effective with the dividend payable in June 2012, making 2012 the company´s 40th consecutive year of dividend per share growth.
